CBN Recapitalization: Minimum Capital Base for Banks May hit as much as N909 billion
Banks may be expected to boost their capital base between N181.85 billion for a regional banking license and N909.27 billion for an international banking license.
This is according to the Banking Sector FY 2024 Outlook produced by CardinalStone Securities.
As per the report, the likelihood of this occurrence hinges on the Central Bank of Nigeria’s decision to return to the dollar ratios of capital bases to GDP set in 2005. These ratios ranged from 0.04% for regional banks to 0.22% for commercial banks.
However, the report also noted that the goal of reaching a $1 trillion GDP size in the next 7 years may necessitate an even higher range for capital base requirements.
The report noted there has been a substantial decline from 2005’s recapitalization exercise, as the requirements which ranged from 0.04% to 0.22% of the GDP in USD terms as of 2005, have dropped to a range of 0.00% to 0.01% of the GDP in USD terms as of 2024.
What you should know
In 2005, the capital requirement for an international banking license was put at N50 billion, which translated to $380 million at the time. The national bank capital requirement was put at N25 billion, translating to $190 million.
The regional banking license was put at N10 billion, translating to $80 million, and the merchant bank capital requirement was N15 billion, or $110 million. Using an exchange rate of N132/$ at the time.
As of January 19, 2024, utilizing the exchange rate of N902.45/$, the Naira equivalent of the USD capital requirements as of 2005 suggests a capital base of N342.9 billion for an international banking license.
Additionally, it implies N171.5 billion for a national banking license, N72.2 billion for a regional banking license, and N99.3 billion for a merchant banking license.
Whatever basis the CBN may use for the recapitalization exercise (capital base to GDP ratio or the USD equivalent of 2005), it should be noted that most Nigerian banks are positioned well to navigate the challenge.
As of September 2023, Nigerian banks boast a cumulative capital base of about N11 trillion.
Among the FUGAZ banks, Zenith Bank boasts a capital base of N1.92 trillion, UBA reports a capital base of N1.78 trillion, Access Holdings reports N1.64 trillion, FBN Holdings reports a capital base of N1.37 trillion, and GTCO boasts a capital base of N1.27 trillion.
About CBN
Statement of CBN Core Mandate
The mandate of the Central Bank of Nigeria (CBN) is derived from the 1958 Act of Parliament, as amended in 1991, 1993,1997,1998,1999 and 2007. Listen to the Audio Version of the CBN 2007 Act
The CBN Act of 2007 of the Federal Republic of Nigeria charges the Bank with the overall control and administration of the monetary and financial sector policies of the Federal Government.
The objects of the CBN are as follows:
ensure monetary and price stability;
issue legal tender currency in Nigeria;
maintain external reserves to safeguard the international value of the legal tender currency;
promote a sound financial system in Nigeria; and
act as Banker and provide economic and financial advice to the Federal Government.
Consequently, the Bank is charged with the responsibility of administering the Banks and Other Financial Institutions Act (BOFIA), 2020, with the sole aim of ensuring high standards of banking practice and financial stability through its surveillance activities, as well as the promotion of an efficient payment system.
In addition to its core functions, CBN has over the years performed some major developmental functions, focussed on all the key sectors of the Nigerian economy (financial, agricultural and industrial sectors). Overall, these mandates are carried out by the Bank through its various departments.
History of the CBN
- D. Paton Report
The period 1892 – 1952, there was an enquiry by the then colonial administration to investigate banking practice in Nigeria. The G. D. Paton Report which emanated from the enquiry was the basis for the first Banking Ordinance of 1952. The ordinance was designed to ensure orderly commercial banking and to prevent the establishment of unviable banks. A draft legislation for the establishment of Central Bank of Nigeria was presented to the House of Representatives in March, 1958. The Act was fully implemented on 1 July, 1959 when the Central Bank of Nigeria came into full operations.
Central Bank Act, 1958
The Central Bank Act, 1958 (as amended) and the Banking Decree 1969 (as amended) constituted the legal framework within which the CBN operates and regulates banks. The wide range of economic liberalization and deregulation measures following the adoption, in 1986, of a Structural Adjustment Programme (SAP) resulted in the emergence of more banks and other financial intermediaries. The Banks and Other Financial Institutions (BOFI) Decrees 24 and 25 of 1991, which repealed the Banking Decree 1969 and all its amendments, were, therefore, enacted to strengthen and extend the powers of CBN to cover the new institutions in order to enhance the effectiveness of monetary policy, regulation and supervision of banks as well as non-banking financial institutions. Unfortunately in 1997, the Federal Government of Nigeria enacted the CBN (Amendment Decree No. 3 and BOFI (Amended)] Decree No. 4 in 1997 to remove completely the limited autonomy which the Bank enjoyed since 1991.
The 1997 amendments
The 1997 amendments brought the CBN back under the supervision of the Ministry of Finance. The Decree made CBN directly responsible to the Minister of Finance with respect to the supervision and control of bank and other financial institutions, while extending the supervisory role of the bank to other specialised Banks and Financial Institutions. The amendment placed enormous powers on the Ministry of Finance while leaving the CBN with a subjugated role in the monitoring of the financial institutions with little room for the Bank to exercise discretionary powers.
The 1998 amendments
The CBN (Amendment) Decree No. 37 of 1998 which repealed the CBN (Amended) Decree No. 3 of 1997. The Decree provided a measure of operational autonomy for the CBN to carry out its traditional functions and enhances its versatility.
The CBN Act, 2007
The current legal framework within which the CBN operates is the CBN Act of 2007 which repealed the CBN Act of 1991 and all its amendments. The Act provides that the CBN shall be a fully autonomous body in the discharge of its functions under the Act and the Banks and Other Financial Institutions Act with the objective of promoting stability and continuity in economic management. In line with this, the Act widened the objects of the CBN to include ensuring monetary and price stability as well as rendering economic advice to the Federal Government.
The BOFI (Amendment) Decree, 1998
Furthermore, the regulatory powers of the CBN were strengthened by the Banks and other Financial Institutions (Amendment) Decree No. 38 of 1998 which repealed BOFI (Amendments) Decree No. 4 of 1997. Through the amendments, the CBN may vary or revoke any condition subject to which a license was granted or may impose fresh or additional condition to the granting of a license to transact banking business in the country.
By the Decree, the CBN’s powers on banks, specifically those relating to withdrawal of licenses of distressed banks and appointment of liquidators of these banks, including the NDIC was restored.
The 1999 amendment
The BOFI (Amendment) Decree No. 40 of 1999 makes the provisions relating to failing banks applicable to other financial institution. It also empowers the Governor of the CBN to remove any manager or officer of a failing bank or other financial institution.
The Money and Capital markets
The CBN has also taken responsibility for nurturing the money and capital markets. In furtherance of this, the CBN introduced treasury bills in 1960, treasury certificate in 1968, and facilitated the establishment of Lagos Stock Exchange in 1961 and the capital issue committee now known as the Securities & Exchange Committee in the early 1970s
